Property Tax Deduction

What is a property tax deduction?

Updated April 18, 2022

A benefit of homeownership is the ability to take property tax deductions when filing annual federal income tax returns. Property tax deductions are not exclusively for taxes on primary homes, either—owners of vacation homes, land, cars, and vehicles may also deduct the taxes on these items. 

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Property and vehicle owners who write off their annual property taxes through deductions can save a good amount of money, but first they need to calculate whether it’s the smartest financial move for them. 

Limits on property tax deductions 

The passage of the Tax and Job Cuts Act in 2017 placed a cap of $10,000 on property tax deductions for people who are single, married and filing taxes jointly, or heads of household. The cap is $5,000 for couples who are married but filing their taxes separately. Even if your annual property taxes exceed $5,000 or $10,000, that is the maximum you can deduct depending on your filing status. Note that homeowners can only take this deduction if they are itemizing the deductions on their taxes. 

One benefit of homeownership is the ability to take property tax deductions. Credit: Leon Dewiwje/Unsplash

For some Americans, it may make more financial sense to take the standard deduction, rather than itemize their deductions. The standard deduction for 2022 is $12,950 for individuals, $25,900 for married couples filing jointly, and $19,400 for heads of household. 

 Note that certain taxes related to homeownership are not deductible. For instance, homeowners association fees and assessments that cover the repair of important infrastructure in your building or neighborhood are not eligible for deduction. 

Itemized vs. standard deductions 

The IRS permits a number of itemized deductions—including for mortgage interest payments and property taxes, among many other expenses—which can lower your taxable income. For some taxpayers, it may make sense to first tally up their itemized deductions to see if the total exceeds the standard deduction. 

The standard deduction may offer greater savings than the total of itemized deductions, particularly for taxpayers who are older than 65 or visually impaired. The IRS has a tool that allows taxpayers to calculate their standard deduction here

How to take the property tax deduction

Taxpayers who choose to itemize their deductions can include a property tax deduction. Here’s how to include it when you file your federal income taxes:  

  • Review your property tax bills. These may be sent to you twice a year by your city or county. 
  • Check your escrow account. Many homeowners pay their property taxes along with their monthly mortgage payments, which lenders then put into an escrow account and pay on the homeowner’s behalf when the property tax is due. Your lender should send you a statement at the end of the year summarizing your payments. 
  • Ensure you know how much you paid in property taxes in the tax year you will deduct them for. 
  • Use the IRS’ Schedule A form to take all your itemized deductions, including your property tax deduction. 
  • If you recently purchased or sold a property, you can deduct the property taxes for the period of the tax year in which you owned the home and paid taxes on it.